What’s Going On Here?Data out on Friday showed Germany's economy bounced back into growth last year, and here’s hoping the wurst is behind the country. What Does This Mean?Germany’s economy went from shrinking 4.6% in 2020 to growing 2.7% last year. That’s a definite improvement, but it’s still way behind the 4.5% economists are expecting from France, Italy, and Spain. Then again, Germany’s economy is much more dependent on manufacturing, which has been hit hard by supply bottlenecks over the past year – not least the chip shortage that forced its carmakers to furlough a fifth of their workers. Mix in the country’s highest inflation in 30 years, and you can see why Germany might end up lagging behind. Still, there might be light at the end of the Eurotunnel: Germany’s central bank thinks the country’s economy will surge after spring and grow 4.2% this year. Why Should I Care?The bigger picture: It’s not just Germany.
It can’t be easy for Germany to see an ex (a Brex?) doing so much better, with data out on Friday showing that the UK economy returned to pre-pandemic levels in November. The country’s services, manufacturing, and construction sectors all grew more than expected between October and November. Issue is, the data reflects a pre-Omicron state of affairs, and economists aren’t optimistic about what’s happened since: they reckon the economy will actually have shrunk in December and January.
For markets: In for a penny…
That data could convince the Bank of England that the UK economy is strong enough to raise interest rates again next month – something the European Central Bank seems determined to avoid until 2023. And since the prospect of higher interest rates – and therefore higher returns on investments – makes a country’s currency more attractive to international savers and investors, the British pound has found itself hovering around its highest level relative to the euro in two years. | 